Baxter boss emerges as change architect

January 27, 2002|By Bruce Japsen, Tribune Staff Reporter.

The timing could not have been worse. As it vied for a $428 million smallpox vaccine contract from the Bush administration, Baxter International Inc. simultaneously faced allegations that its kidney dialysis filters were responsible for the deaths of more than 50 patients worldwide.

Baxter Chief Executive Harry Jansen Kraemer Jr. could just imagine what was going through the minds of his customers--especially after seven countries opened investigations into the deaths.

"Find out the name of that company," Kraemer envisioned them saying. "I certainly don't want anything that company manufactures."

The 47-year-old executive moved fast, recalling filters and putting aside up to $150 million to close plants and compensate victims' families in November when it became clear that Deerfield-based Baxter's dialyzers were indeed to blame.

"Did I ask myself, given what's happened with the dialyzers, could that have some impact on what the government decided to do?" Kraemer says. "Sure."

Yet his fears of losing the jumbo-size vaccine contract because of the dialyzer mess proved unfounded. Late last year, U.S. Health and Human Services Secretary Tommy Thompson selected a joint bid from Baxter and a tiny British biotech firm above more established vaccine makers to increase the U.S. stockpile of smallpox vaccinations as a precaution against a bioterrorist attack.

The long-shot victory in the face of adversity is giving new momentum to an executive determined to bring about big changes. Kraemer is aiming to transform a company better known for making rubber gloves and plastic bedpans into a leading player in the fast-growing biotechnology industry, with interests ranging from blood-clotting drugs to vaccines for encephalitis.

Kraemer's mission is making some folks nervous, especially about the future of Baxter's bioscience division--the fastest-growing of the company's three units. The company spends the bulk of its capital budget of $900 million on biotech, but that's just a fraction of what some of the biggest players spend on drug development.

"They have shed that image of purely commodity type businesses, but I don't think a lot of people associate Baxter with being a biotech play," said Bruce Cranna, analyst with ABN Amro Inc.'s Boston office. "They talk about being 50 percent biotech revenues in five years, and that's clearly the best thing for the [stock] valuation, but it's not quite there yet."

Kraemer is undeterred by skeptics. In the last year, Baxter shares have shot up 25 percent, outperforming those of larger health-care rivals. And as he likes to point out, the company has consistently hit earnings targets since he has been at the helm.

Small biotechs

"We're doing what we said we're going to do," he says. He plans to make Baxter the manufacturer of choice for small biotech companies that do not have the money to build high-tech manufacturing plants and facilities, a niche bigger drugmakers ignore.

"We're not a traditional drug company in the pill/tablet sense of things," he says. "Our competency . . . is having an extremely strong manufacturing process."

Kraemer, who spent 20 years at Baxter, most recently as chief financial officer, is hailed by investors and the board for bringing focus to a company that had disappointed Wall Street for much of the 1980s and early '90s.

Back then, Baxter was considered a laggard that lacked financial discipline, purchasing a hospital supply business that ran into pricing trouble after government insurers clamped down. Kraemer played a key role in encouraging then-Chief Executive Vernon Loucks to spin off that business in 1996.

"Harry was a major factor and a major strength of mine in trying to make that pitch to the board and answer their questions," Loucks said in a recent interview.

Kraemer, Loucks adds, moved up the company's ranks by working with operations executives in Baxter divisions to gain their respect rather them simply "watching where their pennies go."

Now three years into the top job, Kraemer has not forgotten his roots, and associates describe his down-to-earth and approachable nature as one of his chief assets in transforming Baxter.

He is a big fan of Dilbert, the daily cartoon that pokes fun at the vagaries of management, and he opts for playing third base on a company softball team over the more typical executive pastime of golf.

"I don't think Harry gets caught up in all the trappings that go along with the job," said former Baxter colleague Michael Mussallem, now chief executive of Edwards Lifesciences, a maker of heart valves that was spun off from Baxter two years ago.

Kraemer hasn't made a big priority of becoming a local powerbroker, either. "He doesn't avoid interaction with other CEOs, but I don't think he feels the need to add to his prestige," Mussallem said. "Harry was always grounded in his approach to management and the way he treated employees and customers."